Retail Sales Rise 0.5% Retail sales rose 0.5% in May and sales for April were revised up to 0.3% after originally being reported as dropping 0.2%. Retail sales were up 3.2% from May 2018. Core retail sales, which exclude food services, car dealers, building-materials stores and gasoline, also rose 0.5% after an upwardly revised gain of 0.4% in April. Core retail sales correspond most closely with the consumer spending component of GDP. Sales rose in eleven out of thirteen categories. Building materials and garden equipment sales rose 0.1% and online and mail-order purchases rose 1.4%. Companies Speak Out Against Tariffs Walmart, Target and hundreds of other companies and associations made a plea to President Donald Trump to return to the negotiating table with China and hold off imposing any additional tariffs. More than 500 companies and 140 groups representing manufacturers, retailers, oil and gas firms and other industries all signed a letter that came from “Tariffs Hurt the Heartland,” an umbrella group of trade associations that’s pushing back against Trump’s trade war. The President levied duties of $250 billion on Chinese products in 2018, and after talks on a trade deal faltered in May, ordered a tariff increase from the existing 10% to 25% on both the original $200 billion of good as well as another $300 billion in new categories. The coalition commissioned a report in February that showed that the tariffs, along with China’s retaliation, would lead to the loss of more than 2 million US jobs, increase costs for the average American family of four by almost $2,300 and trim GDP. The letter went on to state that the companies and groups support Trump’s efforts to hold trading partners accountable but believe both sides will lose in an escalated trade war. Last Minute Cease-Fire in the Trade War President Donald Trump and Chinese President Xi Jinping agreed to a new cease-fire in the year-long trade war between the two countries. The agreement came after a side meeting between the two leaders during the Group of 20 summit in Japan in late June. Both leaders agreed that stalled trade talks would resume, and that the US would hold off on threatened additional tariffs on another $300 billion in Chinese goods. President Xi Jinping said, “China and the United States both benefit from cooperation and lose in confrontation.” President Trump said“Talks went better than expected” and acknowledged the US has had an “excellent” relationship with China, but “wants to do something that will even it up with respect to trade.” The Home Depot Sanford C Bernstein Strategic Decisions Conference: CEO Craig Menear said that in December 2017 they set out to position THD for long-term growth and doubled their investment in the business over the next three years. They focused on a few key areas, with about 50% of the investment going back into the store environment. If the customer is going to take time to drive to the store, they need to provide a great in-store environment. They are addressing key issues customers have, like wayfinding. They are accelerating merchandising resets, redoing the front ends of stores to make checking out faster and making it easier for people to find what they are looking for. They are also investing in system capabilities that make it easier for customers to engage in both the digital and physical world. During the previous quarter about 54% of all their online orders in the US were picked up in a store. Ninety-five percent of customers give the automated lockers used to provide speedy pickup with no need to interact with an associate five out of five stars. For consumers, they are a project business. Most of the digital world is centered on item retailing; they want to make it easier for customers to do projects, because that’s why they come to Home Depot. They are investing in the Pro experience, with a robust B2B website they will be ramping up all throughout the year. They are investing in their supply chain, continuing to automate their upstream network and building out the capability of a robust downstream market for both consumers and Pros. By 2022 they will have 90% of the US population covered for same-day and next-day delivery capabilities with every type of product they sell. They set up a team several years ago that operates inside their finance group and supports merchandising. So whenever merchants go through a review process or they get a cost request, that analytics team supports them. It’s very proactive. The industry overall is quite competitive; they think about it in terms of who sells the most in a category. It is by no means a duopoly between two big retailers. Lumber and building material yards sell the most lumber. Drywall houses sell the most drywall. They look at various competitors across different spaces. They believe plumbing and electrical distributors offer a great opportunity for them to gain share. During the Great Recession, they saw two dynamics. First, a modest shift in where customers would buy within a line. It would move to the ends; either the opening price point, or the customer would invest in the best if it offered innovation. Customers also worked harder at maintaining what they had; instead of putting on a new roof, they’d buy repair products. They hope they never see another downturn like that one, but they learned a lot from it. They are committed to making their stores locally relevant. They have invested a lot of time and money over the past several years in tools that make it possible for their merchants to localize to a particular market. It can be driven by market preference as well as by store space and capability. They have a long way to go to truly deliver the One Home Depot experience. If you walk into a store, you can’t buy an item off the shelf, pick up a special order and order something from the website in one transaction because they are not the same item file and the systems don’t work together now. They are working on fixing that. Approximately 90% of the US population lives within 10 miles of a Home Depot store, which gives them a definite advantage over Amazon. It is a myth that margins with Pro customers are lower than margins with DIY customers. When you look across the store, margin mix is very comparable. In specific categories such as lumber, drywall and roofing, margins will be less and that can create margin pressure overall if that is all the Pro is buying, but that is not a typical situation. Normally Pros are just like consumers, they are working off and buying from a project shopping list. Their acquisition of Interline will enable them to serve Pros who need multiple trucks of product. The number of retailers that customers shop is shrinking. Over the past four years it’s gone from 13 to 9. The customer wants them to serve a larger share of their wallet. That’s why they believe that moving into home décor categories makes sense for them. Most of that will be done in the digital world, where space is unlimited, rather than in the stores, where they just don’t have the room to do a good job. They will not focus on international until they feel as if they are tapped out in the US, and even then, it would be difficult, as most of the international spaces are already overstored. Right now, they are about 20% private label; their approach has been that the customer will take them there, and they’ve been very transparent with their suppliers. As long as their brands are incredibly relevant to the customer, they will be a brand house. If they feel innovation is lacking or value is not there, they will take it to private label in order to deliver value to the customer. They have a large number of private label brands and every single one of them has at least a four-star rating with customers. Independents do a pretty good job of delivering high-touch service to their customers and finding a niche and being good at it. At THD they are trying to capitalize on the fact that today much shopping begins in the digital world even if it ends in the physical world. Therefore, they need to deliver great service in the digital world, and they are in the process of doing that. Tool rental is a pretty flat business; it’s not cyclical, it’s ongoing. There are many reasons a customer or a Pro rents tools rather than buying them. Even though the labor market is very competitive now, they had no problem hiring 80,000 associates for the busy spring season, because working at Home Depot offers a lot more than wages. A full 90% of the leadership in their stores has come from people who started as hourly associates. They survey customers and associates monthly. In addition to their monthly Voice of the Customer (VOC) they also do a monthly Voice of Associates (VOA). Their VOA is at a record high. Craig Menear said he didn’t think robots would be showing up to fix people’s toilets any time soon; that it is very important to offer knowledgeable associates in a project-based business. Automation has the potential to enhance the capabilities of associates, and that’s what they are investing in. The number one job of their merchants is to be the customers’ advocate for value, and figure out how to deal with all the pressures on the business while minimizing the impact on the customer. The percentage of their business that is Pro is in the mid-forties; Menear thinks that could grow a point or two over the next several years but does not ever want it to overwhelm the DIY business. They believe that if they serve Pros they will also be providing what DIY customers are looking for. Last year they implemented a change in their labor model, which they hadn’t touched in more than a decade. Their new model recognizes that some interactions with customers take much longer than others and allocates time accordingly. After testing the new model, they rolled it out into the stores and should see the benefits going forward. They would be concerned if there was an event that really shook consumer confidence for the long term as it did back in 2007 and 2008. But even in a deep recession, their model would allow their cash flow to be fine. They have a terrific appliance business; approximately 75,000 appliances break every day in the US. So the business has a replacement element as well as an upgrade element driven by innovation. Lowe’s Lowe’s will lease the entire office space at a new tower in Charlotte’s South End near the Design Center of the Carolinas. The 200,000 square foot space will house Lowe’s new tech center and 2,000 technology workers with an average annual wage of about $118,000. Nashville, Dallas and several other cities were considered by Lowe’s before they decided to stay in their own hometown. CEO Marvin Ellison said that the availability of highly skilled tech workers as well as a talent pipeline was one of the deciding factors. Lowe’s needs to hire 400 workers in the next year. Charlotte consistently ranks on the top of lists measuring where young workers are going, with 100 or so people moving to the region daily, a bulk of them millennials. A spokeswoman for the city of Charlotte declined to say how much was offered to Lowe’s in terms of incentives, but the deal will become public knowledge when the City Council votes on it, most likely in late July. One of the things Charlotte did early on was build hangars for Lowe’s at CLT airport. Walmart Walmart is planning to offer thousands of deals to counter Amazon over four days around Amazon’s two-day Prime Day sales blitz. They will offer special buys and rollbacks between July 14 and July 17. Prime Day is July 15 and 16. Target is also offering special deals on July 15 and 16. According to a survey by retail consulting firm Bazaarvoice, about 70% of consumers plan to shop Amazon during Prime Day sales, 44% plan to shop Walmart, 40% plan to shop Target and 24% plan to shop Best Buy. Walmart will launch a pilot of InHome Delivery this fall. InHome is a new service that will deliver groceries directly to a customer’s refrigerator when they are not home. Customers place an online grocery order, select InHome delivery at checkout and then can watch the actual delivery on their devices. The associates involved will have their jobs focused on the service and go through an extensive training program that includes how to enter and treat a customer's home, select the freshest grocery items and organize an efficient refrigerator. The test markets this fall will be Kansas City, Pittsburgh and Vero Beach, Florida. Ace Hardware Ace will open new Ace Hardware stores in 11 former Orchard Supply Hardware locations in California. Nine of the stores will be owned and operated by Ace subsidiary Westlake Ace Hardware. Orchard Supply was a neighborhood fixture in California before Lowe’s decided to close all 99 Orchard Supply stores in 2018 in order to focus on their core business. Ace opened 173 new domestic stores in 2018 and now has more than 4,400 stores across the country. Another seven former Orchard Supply stores will be reopened by Orgill’s Central Network Retail Group. True Value True Value promoted two executives to manage distribution and supply chain optimization after Abhinav Shukla, former senior VP and COO, left to take a position with Aspen Dental Management. The new leaders are Jim Harrington, VP of supply chain operations and Lyndsi Lee, VP of supply chain. True Value recently announced the winners of their 2018 “Best Hardware Store in Town” contest. The winning 13 retailers were selected from more than 4,500 stores and honored at an awards ceremony during their Spring Reunion buying show in Dallas, Texas. To be recognized, the stores undergo a series of selection processes, with regional directors narrowing down the top candidates. Then mystery shoppers visit each selected store to gain a customer's perspective on the operations. Finally, True Value evaluates each finalist based on a series of criteria that includes physical store appearance, product selection, competitive pricing, promotional sales and customer service. Amazon Amazon Prime Day will be a full 48 hours this year, running from 12 a.m. July 15 through 11:59 p.m. July 16. Prime Day last year was 36 hours. FedEx will not renew their domestic air delivery contract with Amazon. The decision highlights tensions between the long-term business partners that developed after Amazon built out their own logistics network and started delivering more packages themselves, lessening their dependence on FedEx and other shipping partners. FedEx will stop working with Amazon at the end of June. FedEx stated that Amazon accounted for less than 1.3% of their revenue last year. Amazon relies more heavily on UPS and the US Postal Service. Analysts noted that Amazon accounted for about 10% of UPS revenue and 15% to 20% of volume. Last year when Amazon demanded price concessions from both shippers, UPS acquiesced and FedEx did not, causing much of the FedEx volume to be awarded to UPS. Amazon is looking at buying pre-paid mobile phone provider Boost Mobile, which is owned by Sprint and expected to be sold as part of Sprint’s merger with T-Mobile. Such a purchase would give Amazon access to the mobile networks that would be owned by the combined Sprint and T-Mobile along with a pool of mobile customers estimated to be in the millions. The deal would require Justice Department approval. Purchase price of Boost has been estimated in the range of $3 to $5 billion. Amazon abandoned their two-year-old social shopping experiment Spark, which showcased a customized feed of user features and ways customers could connect with or get advice from each other. Spark never generated much interest, and Chee Chew, head of Amazon’s customer engagement and the main cheerleader for Spark, left to take a position at cloud communications company Twilio. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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